Jobbik Rising

If you were Hungarian in this time of economic crisis, you might start listening to politicians who complain that "the notion of social service and the common good have faded out of the vocabulary" and who promise to stop the "compulsory private pension fund" and "cancel tax allowances provided for multinational companies." Those quotations come from the program of the extreme-right Movement for a Better Hungary, or Jobbik, which surprisingly won near 15 percent of the vote in the June 7 elections to the European Parliament.

This is unfortunate, because Jobbik also operates a paramilitary organization called the Hungarian Guard and proposes to abolish abortion, re-establish the death penalty and create a special police unit to deal with "gypsy delinquency." Jobbik denies accusations of racism or anti-Semitism, but if you're looking for a time machine back to the bad old days of virulent European nationalism, look no further than Jobbik's platform. The party wants to ban "unjustified sterilization" (to produce as many Hungarians as possible) and to establish a Memorial Day on June 4 to mourn the territories lost in the post-World War I Treaty of Trianon, signed on that day in 1920.

Jobbik appears to have profited not only from the worldwide recession, which has hit Hungary especially hard, but also from the international response to Hungary's problems. Last October, investors decided to stop buying the country's bonds. Hungary was not in default, but "the market" felt that, given the worsening economic climate, the government might have trouble paying in the future. So Hungary turned to the International Monetary Fund (IMF), the European Union (EU) and the World Bank. They arranged a line of credit in exchange for "austerity measures," which means cuts in things investors want cut. This, in turn, means social programs because, to paraphrase Kurt Vonnegut, the rich are highly averse to leakage.

The goal was to make investors feel better. As IMF official James Morsink said, Hungary "needs to provide reassurance to the people who hold the debt--or are potentially going to finance the debt--that it will be able to meet its future obligations." Fiscal stimulus to counter the deepening recession was inappropriate for Hungary because it would "make investors lose confidence," according to Morsink.

So the Hungarian government--led by Prime Minister Gordon Bajnai, a beleaguered caretaker Socialist technocrat--is implementing cuts to sick pay, pensions, public-sector salaries and child allowances, as well as reorganizing the tax code to increase the regressive value-added tax (while lowering it on some food items). The government has also cut payroll taxes and income taxes and established a "luxury" property tax (which one tax expert has said will affect 20 percent of homes). Some corporate taxes have also been cut.

Western news media have either ignored the situation or suggested, "It's about time." The Wall Street Journal ran a piece (featuring the obligatory disability pensioner who could work) about how dysfunctional Hungary's finances were. A "pension glut" was to blame, the Journal said. A helpful chart pointed out that Hungary spends 10 percent of its GDP on pensions (just think of all those old people who could work!) but did not point out that this is by no means remarkable. The United Kingdom, for instance, spent more than 11 percent of its GDP on pensions in 2006, according to Eurostat.

Despite these attempts to portray Hungarians as pampered by wasteful welfare programs, Hungary spends a smaller portion of its GDP on social protection (22 percent in 2006) than does France or Germany, which spent, respectively, 31 percent and 29 percent. Furthermore, a recent EU study on poverty found that 18 percent of Hungarians were behind on at least one utility bill, the highest percentage of any EU country, and that 23 percent lived in households that could not afford to buy a car. (The corresponding figure for the entire EU was only 9 percent.)

Luckily, the international community has not been totally aloof to Hungary's plight. Besides the IMF program and some EU stimulus funds for a couple of construction projects, the Organization for Economic Cooperation and Development (OECD), the official club of developed market democracies, sent its secretary-general, Angel Gurría, to Budapest in early October 2008 to give a speech titled "The Increasing Importance of Financial Education."

Gurría discussed the "continued need for pension reform" in Hungary. Since reform means cuts, Gurría pointed out that nowadays "individuals" have to "take more responsibility for funding their retirement income." People aren't doing this, he said, because "Hungarians don't plan for the future" and because "private pensions are complex." The solution, according to Gurría, was to promote "financial literacy" so that people could understand complicated things like "investment risk during the accumulation phase" and "inflation risk during the decumulation phase." (He forgot to mention the can't-pay-your-utility-bill phase.) The funny thing is that Gurría's speech was held several weeks before the IMF bailout and austerity program--which is not surprising, since every day is pension reform day at the OECD.

G-20 photo-ops notwithstanding, that's about all the international community has done to help Hungary, an EU and NATO member, a fledgling democracy right in the middle of Europe--the same old program of "individual responsibility" for retirees and the disabled, and "reassurance" for the "people who hold the debt." Recession or no, that remains the dominant language of democratic capitalism. That's the language that feeds the extremism of Jobbik and other far-right populist parties across Europe.

It's hard to know how dangerous Jobbik is. The party did better than expected in the June 7 poll and could enter a coalition government with the populist center-right after national elections in 2010, which the austerity-peddling Socialists seem likely to lose.

However, Jobbik's current numbers might not be the relevant factor to consider. Instead, we should turn to the economic historian Karl Polanyi (himself a Hungarian), whose 1944 classic, The Great Transformation, described how the social destruction wrought by market forces paved the way for fascism in Central Europe. Polanyi argued that a dysfunctional social situation created fascism, not the other way around. Fascism "was rooted in a market society that refused to function," he wrote. "To imagine that it was the strength of the movement which created situations such as these, and not to see that it was the situation that gave birth to the movement, is to miss the outstanding lesson of the past decades."

If we continue to pretend that an economy is working as long as "the people who hold the debt" are happy, then we might need to relearn that lesson.